Q&A Forum

separate entities and chart of accounts

New to accounting packages, but I am self employed with several legal entities (SCorp, LLC, personal). In setting up desktop quickbooks, would each entity have a separate chart of accounts? They need to be completely segregated and I know this can't be done in on-line version without 3 separate instances being purchased. People use inconsistent language which makes finding exact answers difficult.

Answers

In desktop (backup frequently, just saying) you don't need to have them different, but....it makes transfer and consolidation far easier.

You do need to have them separate; truly separate companies. QB and similar systems don't do a good job of supporting multi-entity accounting in a single instance. It is getting better, but IMHO it is safer (but not easier) to have wholly separate company files with their own charts of accounts.

You'll naturally have personal accounts (groceries, for example) that won't appear on the entities. You will have accounts (rent, telecoms) that will get allocated across all of them.

If you can maintain structural matching, and duplicate nomenclature of the shared accounts, you'll be far ahead when you are doing the transfers.

One other way, in addition to following Keith's advice, is as follows: Please NOTE: it has many pitfalls.

Use Departments. Three departments, one for SCorp, one for LLC and one Personal. Three cash accounts, Equity, possibly sales, single expense, etc (accounts depend on what managerial/financial information you will require.

Every entry as a department code.

However, confusion becomes very apparent in A/P when a vendor sells you a service (like telephone) that needs to be allocated among the three entities.

I just finished a M&A due diligence that had their books set-up this way, and it left a tremendous amount of doubt in my mind as to the accuracy of the books (and a lot of explaining).

I DON'T ADVICE THIS METHOD, SINCE YOU HAVE THREE DISTINCT TAXABLE ENTITIES, but it is another legitimate way attacking the problem.

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